Japan's Topix Falls the Most in Five Weeks on U.S. Retail Sales, Fed View

By Akiko Ikeda -
Jul 15, 2010

Japanese stocks fell, dragging down
the Topix index by the most in five weeks, as concern mounted
that a global economic recovery will stall after U.S. retail
sales declined and the Federal Reserve cut its growth forecast.

“The worst is already behind us, but the strength of the
recovery is weak,” said Masayuki Kubota, a fund manager at
Tokyo-based Daiwa SB Investments Ltd., which oversees about $51
billion in assets. “Concerns remain about the future once
support from economic measures expires.”

The Topix sank 1.6 percent to 856.60 at the 3 p.m. close in
Tokyo, its biggest drop since June 7. About eight stocks
retreated for each that advanced. The Nikkei 225 Stock Average
fell 1.1 percent to 9,685.53. Both gauges closed yesterday at
their highest levels since June 24.

The Topix declined the most among benchmark indexes in the
Asia-Pacific region. It has decreased 5.6 percent this year on
concern that Europe’s government-debt crisis and China’s moves
to cool inflation will hamper a global economic recovery. Stocks
in the gauge trade at 16.7 times estimated earnings on average.
They were at 16.1 times on July 1, the lowest level since 2008.

Retail Sales, Fed

In New York yesterday, the Standard & Poor’s 500 Index
slipped less than 0.1 percent as the decline in retail sales and
the Federal Reserve’s outlook overshadowed a forecast for record
profit by Intel Corp.

Electronics companies were the biggest drag on the Topix
among the index’s 33 industry groups, followed by banks and
carmakers. All but one group fell today.

Sales at U.S. retailers dropped 0.5 percent in June, more
than projected, after declining 1.1 percent in May, Commerce
Department figures showed yesterday in Washington.

‘Economic Outlook Softened’

“The economic outlook had softened somewhat and a number
of members saw the risks to the outlook as having shifted to the
downside,” according to minutes released yesterday of a June
meeting of Federal Reserve officials. U.S. central bankers
lowered their central tendency forecast for 2010 growth to a
range of between 3 percent and 3.5 percent versus 3.2 percent to
3.7 percent in April, the minutes showed.

The strengthening yen further hurt stocks, reducing
overseas income at Japanese companies when converted into their
home currency. The yen appreciated to as much as 88.02 against
the dollar today in Tokyo, compared with 88.92 at the close of
stock trading yesterday. Against the euro, it strengthened to
112.06 from 112.99.

Resona Holdings tumbled 5.3 percent to 975 yen, the biggest
drop in the Nikkei 225, on speculation the bank will sell shares
to repay government funds. A spokesman for the lender declined
to comment.

Resona Rumor

“There is a rumor Resona may be trying to raise capital to
pay off the government,” said Ismael Pili, a Tokyo-based
analyst at Macquarie Group Ltd. “The rumor is gaining
momentum.”

The Baltic Dry Index of freight rates to ship bulk
commodities plunged 4.5 percent yesterday in London in its 34th
consecutive decline, the longest losing streak since August 2001.

“Investors are trying to avoid risks,” said Takero Inaizumi, head of equity research in Tokyo at Mizuho Investors
Securities Co. “Market participants are still concerned the
global economy may head into a double dip after economic-
stimulus measures expire.”